Charting the Economic Life Cycle

Understanding the economic lifecycle %u2013 how it varies and why %u2013 is important in its own right, but is also critical to understanding how changes in population age structure influence many features of the macroeconomy. Economic behavior over the life cycle can be summarized by the average levels of consumption and labor earnings at each age, as shaped by biology, culture, institutions and individual choice. Here we present estimates of these in detail for the US and Taiwan, showing the roles played by public and familial transfer systems as well as asset accumulation, and present more basic profiles for selected additional countries drawing on studies from a larger project. Average economic dependency occurs when consumption exceeds labor earnings, typically in childhood and old age. A changing population age distribution alters the relative numbers of weighted consumers and producers, as summarized by the support ratio. The %u201Cdemographic dividend%u201D occurs during a sustained period of improving support ratios during the demographic transition, as can be shown using these profiles. The estimated cross-sectional age profiles of labor income have a broadly similar hump shape. However, there are striking contrasts in the timing of earnings over the life cycle. The consumption profiles reveal even more striking contrasts, with a flat age profile of total adult consumption in Taiwan and a steeply rising one in the U.S. We believe these differences reflect the extended family versus the state as the primary locus of transfers to the elderly. Profiles for private consumption are also quite variable, with Indonesia peaking early around age 25, Taiwan being essentially flat, and the US peaking late at around 55. Private expenditures on education show wide variations, with unusually high expenditures in some Asian countries. Because of possible public-private substitutions, it is questionable to assign causality to either for differences in total consumption, but it is hard to avoid noticing that without public spending on Medicare and institutional Medicaid in the U.S., total consumption would decline after 55, whereas with them, it rises strongly. There is only a short period of life during which production exceeds consumption barely more than 30 years in the US, Taiwan, and Thailand. The brevity of this phase contrasts sharply with high life expectancy, approaching 80 years in many countries.

Population aging and the extended family in Taiwan

Population aging produces changes in the availability of kin with uncertain implications for extended living arrangements. We propose a highly stylized model that can be used to analyze and project age-specific proportions of adults living in extended and nuclear households. The model is applied to Taiwan using annual data from 1978-1998. We estimate cohort and age effects showing that more recently born cohorts of seniors are less likely to live in extended households, but that as seniors age the proportion living in extended households increases. The effect of individual aging has diminished over time, however. The proportion of non-senior adults living in extended households has increased steadily because changes in the age structure have increased the availability of older kin. The model is used to project living arrangements and we conclude that the proportion living in extended households will begin to decline gradually for both seniors and non-seniors. The extended family is becoming less important in Taiwan, but it is not on the way out.family, household, living arrangements, population aging, Taiwan

Demographic Dividends, Human Capital, and Saving.

The objective of this paper is to provide new evidence about the development effects of changes in population age structure and human and physical capital. This extends our previous work by developing and employing a more comprehensive model of demographic dividends. In addition, we extend earlier analysis about the quantity-quality tradeoff using newly available NTA data for 39 countries, in contrast to the nineteen with the necessary data in our 2010 study. This permits a more detailed analysis, treating public expenditures and private expenditures separately, and considering the role of per capita income as well as fertility and child dependency in relation to human capital spending. The analysis is used in a simulation with realistic demography to show how human capital investment has varied in relation to the changing demography from 1950 to the present, and how it might be expected to change over the rest of this century. These new estimates are then used in a more comprehensive model that incorporates both human and physical capital. The analysis provides estimates of the first and second demographic dividends and how they are affected by speed of fertility decline. The timing of the effects is documented and the relative importance of investment in physical and human capital is assessed. This improves our understanding of the economic implications of the demographic dividend and particularly the “second demographic dividend”